Economic complexity and income inequality in EU countries

Abstract

The article studies the relationship between economic complexity and income inequality across EU countries from 1995 to 2020. The analysed period characterises high globalisation in which “new” EU countries experienced a high transformation of their productive structure. Production structure largely determines income distribution and, thus, income inequality. We employed panel data methodology to assess the relationship between economic complexity and income inequality. To control for economic activity and education, GDP per capita and average years of secondary schooling are also included in the analysis. Expectedly, our findings point to the correlation between economic complexity and income inequality in EU countries. However, the results also indicate an opposite effect between the “old” EU member states and a group of “new” EU member states. This finding suggests that “new” EU members needed more economic complexity in the observed period to reduce income inequality.

Keywords

• income inequality
• economic complexity
• panel model